The growth in the Insurance Industry in recent years has resulted in a significant increase in the Funds of insurance companies. They are also significant investors in the securities markets and act as investors on behalf of the policyholders. There is increased emphasis on governance of public companies under the corporate and insurance law and the role and responsibility of Boards of companies has escalated.

Considering the fiduciary role played by the insurance companies as investors on behalf of the policyholders, it is felt that greater transparency is needed as regards the manner in which the investments are managed by them. In this regard, the Authority has examined the regulatory stipulations/ guidelines in various jurisdictions across the world and it was noticed that disclosures regarding decision making and voting at meetings of investee companies by institutional investors are being encouraged.

In this regard, the Authority has selected a set of Principles of Stewardship to be adopted by the Insurers as institutional investors. The principles are intended to strengthen the role of insurers as stewards on behalf of the policyholders. The Authority is of the view that adoption of the principles would improve the confidence of the policyholders in the insurers on one hand and also ensure better corporate governance and decision making at investee companies on the other.

The principles for Stewardship are placed in the attached draft document for public examination. The principles would require insurers to draw out a policy based on the principles and get it approved by their Board of Directors. The policy would need to be disclosed on their website within 30 days of approval by the Board.

Comments/ suggestions on the draft stewardship code may be forwarded to mamta@irda.gov.in with a copy to shardul@irda.gov.in in the prescribed format by 15th February, 2017.

(Dr Mamta Suri)
Chief General Manager

FORMAT FOR SUGGESTIONS ON

DRAFT Stewardship Code for Insurers in India 2017

Change suggested by

Date

Page No

Principle

No.

Para Number/Annexure Number

Suggested change

Reasons for change

Stewardship Principles

Principle 1

Insurers should formulate a policy on the discharge of their stewardship responsibilities and publicly disclose it.

Guidance

Stewardship activities include monitoring and engaging with companies on matters such as strategy, performance, risk, capital structure, and corporate governance, including culture and remuneration.

The policy should clearly define the stewardship responsibilities as identified by the insurer and how it intends to fulfill the same to enhance the wealth of its clients. The policy should disclose how the insurer applies stewardship with the aim of enhancing and protecting the value for the ultimate beneficiary or client.

In case some of the activities are outsourced to some external service providers, the policy should provide the responsibilities to be delegated to such service providers and the mechanisms to ensure that the overall stewardship responsibilities are carried out seamlessly.

Principle 2

Insurers should have a clear policy on how they manage conflicts of interest in fulfilling their stewardship responsibilities and publicly disclose it.

Guidance

Insurers should put in place, maintain and publicly disclose a policy for identifying and managing conflicts of interest with the aim of taking all reasonable steps to put the interests of their client or beneficiary first. The policy should also address how matters are handled when the interests of clients or beneficiaries diverge from each other.

Principle 3

Insurers should monitor their investee companies.

Guidance

Insurers should have mechanisms for regular monitoring of their investee companies in respect of their performance, leadership effectiveness, succession planning, corporate governance, reporting and other parameters they consider important.

Insurers may or may not wish to be made insiders (actively involved with the investee companies). An insurer who may be willing to become an insider should indicate in its stewardship statement the willingness to do so, and the mechanism by which this could be done.

Insurers will expect investee companies and their advisers to ensure that information that could affect their ability to deal in the shares of the company concerned is not conveyed to them without their prior agreement.

Principle 4

Insurers should have a clear policy on intervention in their investee companies.

Guidance

Insurers should set out the circumstances in which they will actively intervene and regularly assess the outcomes of doing so. Intervention should be considered regardless of whether an active or passive investment policy is followed. In addition, a low volume of investment is not, in itself, a reason for not intervening. Instances when insurers may want to intervene include, but are not limited to, when they have concerns about the company’s strategy, performance, governance, remuneration or approach to risks, including those that may arise from social and environmental matters.

The meetings should be held in a confidential manner with the view to resolve the issue constructively. If dissatisfied with the response of the investee company, the insurer may decide to escalate the matter, in accordance with the pre-defined policy.

Principle 5

Insurers should have a clear policy for collaboration with other institutional investors, where required, to preserve the interests of the policyholders (ultimate investors), which should be disclosed.

Guidance

For issues that require larger engagement with the investee company, institutional investors may choose to act collectively in order to safeguard the interests of their investors. For such situations, the insurers should have a policy to guide their actions and extent of engagement.

Principle 6

Insurers should have a clear policy on voting and disclosure of voting activity.

Guidance

Insurers should not just blindly support the board of the investee company but, instead, take their own voting decisions to promote the overall growth of the investee companies and, in turn, enhance the value of their investors.

The voting policy should be publicly disclosed. The voting decisions taken in respect of all the investee companies should also be disclosed publicly along with the rationale for such decision in Annexure B.

Insurers should disclose the use made, if any, of proxy voting or other voting advisory services. They should describe the scope of such services, identify the providers and disclose the extent to which they follow, rely upon or use recommendations made by such services.

Insurers should disclose their approach to stock lending and recalling lent stock.

Principle 7

Insurers should report periodically on their stewardship activities.

Guidance

In addition to the regular fulfilment of their stewardship activities, institutional investors should also provide a periodic report to their ultimate beneficiaries (policyholders) of how they have discharged their responsibilities, in a format which is easy to understand.

However, it may be clarified that compliance with the aforesaid principles does not constitute an invitation to manage the affairs of a company or preclude a decision to sell a holding when this is considered in the best interest of clients or beneficiaries.

Annexure A

Format for annual reporting of compliance status of stewardship code to the Authority

Name of Insurer: ____________________

Period of Report (FY): ____________________

Status of Compliance with Stewardship Principles

Sr No.

Particluars of Principles of Stewardship Code

Status (Deviation, Partly complied, Not complied)

Reason/ Justification for deviation or non-compliance

Compliance Officer

(Name and Signature)

Annexure B

The format for disclosure of voting by insurance companies in general meetings of listed companies: